Ann Crotty Writer-at-large

Steinhoff has given its creditors less than a week to agree to a three-year debt standstill that would give the Steinhoff board and management room to correct and restructure the business without the constant threat of liquidation proceedings.

The Steinhoff share price surged 21% to R2.60, its highest intraday level since April, on Wednesday’s news that management had launched a consent process for a lock-up or standstill agreement with its creditors. The share eased from its highs to close at R2.26.

Steinhoff implied that if sufficient creditor support is not obtained by July 16, its key European operations could be faced with liquidation proceedings.

Steinhoff’s South African operations are not affected by the plan, which focuses on the creditors of Steinhoff Finance Holdings GMBH (Finance Holding) and Steinhoff Europe AG (SEAG). Finance Holdings and SEAG are both Austrian-based.

No South African assets have been listed as part of the security for any of the debt involved in the proposed standstill agreement.

Steinhoff urged creditors to back the lock-up agreement (LUA). At least 75% of creditors have to back the LUA for it to become effective.

The standstill agreement will remain in place until December 2021.

Full implications

The three years will give management time to consider the full implications of the PwC investigation, which is expected to be wrapped up by December 2018. It also reduces the chances of Steinhoff being seen as a forced sellers of any assets.

In addition, the three-year debt standstill will create capacity for Steinhoff to raise some much-needed working capital, to keep the operations afloat.

One portfolio manager who did not want to be named told Business Day that although Steinhoff had secured indicative support from some of the creditors, getting the full support needed was not a certainty.

"A lot of vulture funds swooped in to buy up Steinhoff debt in December in the hope of making quick returns, either because things might turn out not to be as bad as they initially appeared or because of prospects for income from asset disposals. Three years is a long time for them," said the portfolio manager.

Creditors are being enticed to sign up to the agreement with the offer of additional fees, which will be added to the capital amount of the debt owed by Steinhoff.

Creditors will also be given an opportunity to participate in the group’s governance.

"A governance working group has been established from certain creditor representatives to work alongside the company’s nomination committee to consult on matters, including changes which could be introduced to the composition of the supervisory board and the management board of the company," said Steinhoff.

It said a search for new candidates for its boards would be led by the nominations committee in consultation with the newly established governance working group.

A litigation committee will also be established by each of Steinhoff’s subsidiaries "to oversee material litigation in respect of the group," said Steinhoff.

In addition to winning support from 75% of creditors, the directors of Finance Holdings and SEAG must each establish a "positive going concern prognosis" in order for the LUA to become effective, in terms of Austrian law.

The launch of the lock-up agreement marks an important step in the restructuring process, Steinhoff said in the Sens announcement.